The negative sentiment around software stocks doesn’t seem to be going anywhere. The likes of Anthropic’s Cloud come out with new capabilities frequently, the death toll of software skeptics continues to grow. As tools like OpenClaw and Codex see increasing adoption day by day, predicting the irrelevance of their services or offerings, software companies are expected to find it difficult for them.
Recently the big broker has been Piper Sandler, which lowered its price target on Microsoft (MSFT) from $600 to $500, still indicating an upside potential of about 22% from current levels.
What remains undeniable, though, is that Microsoft has become a behemoth. Its market cap of nearly $3 trillion and its AI prowess make it hard to believe that, in the present day, Microsoft will suddenly become irrelevant. What does this mean for MSFT stock as an investment option? Let’s find out.
Putting aside what the skeptics are saying, a look at Microsoft’s financials accurately reflects why it has been held in such high regard among market participants for decades. Over the past 10 years, the company has grown its revenue and earnings at a CAGR of 13.24% and 16.12%, respectively, while its market cap has grown 10 times over the same period.
Furthermore, the most recent quarterly results saw the company beat revenue estimates by a billion dollars, as well as report its ninth consecutive earnings beat.
Microsoft’s revenue for Q2 2026 came in at $81.3 billion, a 16.7% increase over the previous year. The growing cloud segment continued to report strong growth of 26% year-over-year to $51.5 billion as commercial remaining performance obligations rose 110% to $625 billion, not bad for a company perceived as irrelevant.
Income has also increased. This time up 23.6% from the prior-year period to $4.14 per share, coming in ahead of the consensus estimate of EPS of $3.90. For Q3 2026, the company expects revenue between $80.65 billion and $81.75 billion, in line with Wall Street’s estimate of $81.4 billion.
Meanwhile, Microsoft’s net cash from operations in Q2 2026 was $35.8 billion. This is an increase from the previous year’s figure of $22.3 billion. Overall, Microsoft ended 2025 with a cash balance of $24.3 billion, well above its short-term debt level of $4.8 billion.
Furthermore, the recent decline in the stock (down 14% on a YTD basis) has brought the company’s valuation to comfortable levels. While its forward P/S at 8.90 is slightly off the sector median of 3.04, its forward P/E and P/CF of 23.52 and 17.81 are within the range of the sector median of 22.84 and 17.56, respectively.
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Microsoft is executing a major capital spending expansion, committing more than $120 billion for fiscal 2026. This aggressive ramp-up represents a big jump from the roughly $80 billion deployed in 2025. The latest quarterly figures highlight this urgency, with an eye on the fiscal second quarter 2026-2026. $37.5 billion, directed primarily at processing units and facility construction. For example, to support the growth of the Azure cloud, which recently grew by 39%, the tech giant is acquiring huge land parcels like the 3200-acre Wyoming site.
Furthermore, to counter the likes of OpenClaw and Codex, Microsoft is using its large capital budget to secure absolute dominance in raw computing power. By building gigawatt-scale facilities and pouring funds into hyperscale infrastructure with OpenAI, the company aims to provide an indispensable foundation for decentralized agents. So, instead of fighting the localized wave head-on, Microsoft is positioning Azure as the ultimate utility provider, betting that even the most agile, self-hosted devices will need its massive computing grid to process complex enterprise workloads.
As such, Microsoft has introduced its new Microsoft 365 E7 Frontier Suite, which is scheduled to be available in early May. This offering combines the key security features of the E5 plan with the full capabilities of Copilot and the innovative Agent 365 control plane. The development marks a significant step away from traditional per-user licensing towards value-driven AI-based subscriptions. In this model, superior pricing is supported by the ability to effectively automate various business workflows.
Additionally, Microsoft has launched Copilot Cowork, which enables AI to serve as an active member of a team rather than just operating as a standard chatbot. This new tool can handle extended tasks and complex multi-step processes that evolve slowly over time. These capabilities are supported by Work IQ, an innovative organizational memory system designed to analyze communication habits and previous choices made within the company.
Furthermore, by building its own proprietary silicon technology, Microsoft is working to limit its dependence on Nvidia (NVDA) in the long term. The effort is focused on the Maia 200 AI accelerator chips, which are expected to help protect the company’s profit margins for years to come. Microsoft has also embraced a multi-model approach, allowing Copilot to choose the most appropriate artificial intelligence model for each specific task. It includes a cloud model when advanced logic is required. The introduction of the MAI foundational models demonstrates the company’s plan to aggressively compete with OpenAI and Google ( GOOG ) ( GOOGL ) not only in distributing the models but also in developing them internally.
Overall, estimates indicate that Azure AI could generate an additional $25.7 billion in revenue by 2026. The broader sovereign AI sector and the entire cloud computing market is projected to expand to $156.2 billion in the same year. Microsoft has positioned itself to benefit from this growth by making targeted investments in regional infrastructure. Examples include a $10 billion commitment in Japan as well as additional initiatives in Singapore and across Europe.
Therefore, analysts have assigned MSFT stock an overall rating of “Strong Buy” with an average target price of $582.38, indicating a potential upside of about 43% from current levels. Among the 49 analysts covering the stock, 41 have a “strong buy” rating, four have a “moderate buy” rating, and four have a “hold” rating.
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As of the date of publication, Pathikrit Bose did not have positions (directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
